Formation of a Corporation (see practice question 349 on page 57): The sole shareholder of an S corporation contributed a building with a fair market value of $200,000 and a basis of $80,000 subject to a $120,000 liability. What amount is the gain, if any, that the shareholder must recognize?

$0

Explanation:

A Section 351 transfer applies to both C and S corporations. This means that no gain or loss will be recognize when a property is transferred to a corporation in exchange for stocks as long as immediately after the exchange, the stockholder assumes control of the corporation according to Section 368.

Section 368 establishes that corporate control means that the shareholder must own at least 80% of the common stock of the corporation and 80% of voting rights. In this case, since the S corporation only has one shareholder, he/she complies with section 368.

reducing the scale of the market for a new product.